From Rolling Recession to Productivity Boom: The Path to a Healthier Bull Market
36min read The U.S. economy has entered a period of uneven stagnation—a “rolling recession”—where regional and sectoral downturns mask a national economy that has yet to fully tip into outright contraction. Yet beneath the surface of slowing GDP growth and rising unemployment lies a critical shift: a productivity renaissance driven by technology, capital reallocation, and structural reforms. This productivity-led boom could not only end the current malaise but also lay the groundwork for a sustained economic expansion and a healthier bull market.
The Rolling Recession: A Temporary Headwind
The Commerce Department’s report of a 0.3% GDP contraction in Q1 2025 underscores the fragility of the current recovery. Regional disparities are stark: high-cost housing markets like California and New York continue to struggle, while lower-cost regions gradually rebound. Meanwhile, federal workforce layoffs and immigration policy shifts have created labor shortages in sectors like agriculture and hospitality, further complicating the recovery.
But this contraction is not the whole story. The rolling recession is a symptom of policy uncertainty—tariffs, trade wars, and fiscal tightening—rather than an inevitable collapse. In fact, the baseline economic forecast projects GDP growth to stabilize at 2.6% in 2025, rising to 2.9% by 2027, fueled by modest but steady productivity gains.
The Productivity Pivot: Tech, TFP, and the New Economy
The key to this turnaround lies in total factor productivity (TFP)—the elusive driver of long-term growth. After a 0.7% rebound in 2023, TFP is poised for further gains. Sectors like computer systems design, online retail, and data processing have already led the charge, with labor productivity surging by 2.5% in Q2 2024. This acceleration is no accident: it reflects a structural shift toward capital deepening in high-productivity industries.
The data shows TFP growth has averaged 0.9% annually since 2020, driven by tech adoption and innovation. In the upside scenario—a 25% probability—productivity gains could push GDP growth to 2.9% in 2025, as firms leverage AI, automation, and tax reforms to boost efficiency.
Capital Investment: The Fuel for Sustained Growth
While business investment dipped 1.1% in Q4 2024 due to high borrowing costs, the outlook is brightening. Projections show capital spending rebounding to 3.4% growth in 2025, with 6.3% growth expected by 2026. The catalyst? A surge in spending on intellectual property (IP)—software, AI, and R&D—projected to grow 4.9% annually through 2027.
Companies like Tesla, which have poured capital into innovation, exemplify this trend. Its stock price—up 50% since 2022—reflects investor confidence in its leadership in AI-driven manufacturing and energy.
Navigating the Risks: Trade Wars and Inflation
The downside scenario—a 25% probability—remains a threat. Aggressive tariffs could stifle productivity by raising input costs and disrupting supply chains, pushing GDP growth to just 1.3% in 2026. But even here, the path forward is clear: policy discipline. Reducing trade barriers, extending tax incentives for R&D, and stabilizing labor markets will be critical.
Conclusion: A Bull Market Built on Productivity, Not Speculation
The rolling recession is a temporary setback, not a permanent condition. The 2.6% GDP growth projected for 2025 and the 2.9% upside scenario hinge on productivity gains that are already underway. With TFP growth averaging 0.9% annually since 2020 and capital investment in IP and tech poised to accelerate, the foundation for a sustained boom is being laid.
Investors should focus on companies and sectors that are retooling for productivity:
- Tech Leaders: Firms like NVIDIA and Microsoft, which dominate AI and cloud infrastructure.
- Reshored Manufacturing: Companies like Boeing and Caterpillar, benefiting from supply chain diversification.
- Housing Recovery Plays: Regional builders in low-cost markets (e.g., Texas, the Midwest), where housing starts are expected to rebound.
The next bull market will be different. It won’t be fueled by speculative bubbles or debt-fueled spending. Instead, it will be rooted in hard productivity gains, structural reforms, and the relentless march of innovation. For those willing to look past the noise of today’s rolling recession, the rewards are clear.
Andrew Ross Sorkin is the author of this article.
